1. Theory of Taxation

Taxation means the taxing authority or government imposes a tax on its business entities and citizens. Taxation applies to all levels from income tax to goods and services.  The taxation theory is defined as the relative differences in return rates before and after marginal tax and a project respectively. Marginal is defined as a project that is small and has a zero net value to a company under the tax system.

Malaysia implements a tax system, which is territorial with residents and non-resident taxes on the source of income of Malaysia. Foreign investors are subject to analysis, which is following: 

  • Corporate income tax
  • Value-added tax
  • Digital service tax
  • Income tax

Corporate income tax (CIT) is imposed on incurred income in Malaysia. The tax rates are such as resident company paid up gross income of 50 million and capital of 2.5 million ringgit (aseanbriefing, 2023). The changeable income is 600000 ringgit and the tax rate is 17% for resident companies and 24% for non-resident companies.

Value added tax

Malaysia replaced good and Services Tax (GST) with the SST IN 2018. The tax rate of sales is 10% and the tax rate of sales is six per cent. Some tax rate of goods is reduced by 5% (aseanbriefing, 2023). 

Digital income tax

The Malaysian government imposed a digital service tax (DST) on January 1, 2020, of 6% on FSPs in Malaysia. The RMCD guide defines digital services are delivered over the internet with human intervention from the provider of service. The digital service includes firewalls, search engines, and social networks, online services of learning and video games and mobile applications

Individual income tax

Malaysia uses both rate of flat and progressive for personal Income Tax, which depends on the duration of an individual in the country. The Income Tax Act of 1967 established Income taxation for personnel in Malaysia

  1. Cost Theory of Tax

The Cost service Theory of Taxation implies that the citizen pays the tax which is ruled by Government in the country. This theory defines that business costs highly determine supply and spending. The cost theory looks at the concepts of short-run of total and average cost and the long-run cost with scales of the economy (Elibrary, 2023). The function of cost varies some factors such as production price, scale of operation and output size. This theory needs to realize to run their company and develop productivity and profit.

Cost analysis is significant in marginal economics. Managers must have a well understanding of the relationship between costs for maximizing the value of the firm. Many costs are more manageable than affecting factors of revenue. The social cost includes administering the law and enacting cost, compliance cost, losses, and expenditures caused by the activities of taxpayers for reduction of the tax burden (elibrary, 2023). Theses all these elements are included in the accurate model of the cost of taxation. The major elements of taxation costs are administrative costs, regular deadweight loss, avoidance costs, compliance costs, and excess tax burden costs. The theory helps to maintain proper rules as well as regulations in the taxation segment

  1. Administrative costs

This cost may be the function of mobility and the physical size of the base of tax. It is increasing complexity function and lack of tax law clarity.

  1. Compliance costs

This cost can find of magnitude and this cost is hidden when administrative costs must pass through a process of budget.

  1. Avoidance costs

The controllers of tax players produce excess burden and it is hard between compliance and avoidance costs.

  1. The regular deadweight loss

Any kind of tax makes a wedge between the prices that two taxpayers face and a loss of efficiency.